Bloomin’ Brands, Inc. — Q1 2022 Form 10-Q
Business and period: The company owns and operates Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s Prime Steakhouse & Wine Bar, with franchise operations as well. The filing covers the 13 weeks ended March 27, 2022, compared with the 13 weeks ended March 28, 2021. Results are unaudited.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change / context |
|---|---|---|---|
| Total revenue | $1,140.5 million | $987.5 million | Up 15.5% |
| Income from operations | $107.3 million | $91.0 million | Operating margin 9.4%, versus 9.2% |
| Net income attributable to Bloomin’ Brands | $75.5 million | $68.9 million | Net income was $77.7 million, including noncontrolling interests |
| Diluted EPS | $0.73 | $0.63 | Adjusted diluted EPS, a non-GAAP measure, was $0.80 versus $0.72 |
| Restaurant-level operating margin | 17.1% | 18.8% | Declined despite higher consolidated operating margin; this non-GAAP measure excludes several corporate and other costs |
| Cash from operating activities | $147.1 million | $141.0 million | Increase primarily reflected gift-card collection timing and lower cash interest paid, partly offset by higher employee compensation payments |
| Capital expenditures | $40.2 million | $17.4 million | Higher year over year |
Sales, costs and segment trends
- U.S. comparable restaurant sales increased 14.0%, driven mainly by a 12.5% increase in average check per person; traffic rose 1.5%. Outback U.S. comparable sales rose 9.2%.
- International Outback Brazil comparable sales increased 35.9%; traffic rose 28.7% and average check increased 7.6%.
- Restaurant sales increased to $1,123.6 million from $979.5 million. Management attributed the increase to comparable sales and new restaurants, partly offset by closures and foreign currency translation.
- Food and beverage costs rose to 32.0% of restaurant sales from 29.8%, mainly due to commodity inflation. Labor costs were 27.8% versus 28.0%; other restaurant operating costs were 23.1% versus 23.4%.
- U.S. segment revenue was $1,036.4 million and operating income was $132.2 million; international revenue was $104.1 million and operating income was $8.9 million. International operating results improved substantially from the prior-year quarter, while U.S. restaurant-level margin fell to 17.4% from 19.2%.
Liquidity, debt and capital allocation
- At March 27, 2022, cash and cash equivalents were $97.8 million. The company reported a working-capital deficit of $664.4 million, compared with $631.8 million at December 26, 2021; management noted that negative working capital is common in its business and includes unredeemed gift cards and current lease liabilities.
- Debt principal totaled $732.5 million: $192.5 million term loan A, $10.0 million revolving borrowings, $230.0 million of 2025 Notes and $300.0 million of 2029 Notes. Balance-sheet debt, net of discounts and issuance costs and including finance lease amounts, was $722.2 million. The company had $769.3 million of available unused revolving capacity, net of letters of credit, and was in compliance with debt covenants.
- Financing cash outflow was $101.1 million, including $10.4 million of share repurchases and $12.6 million of dividends paid. The company authorized a $125 million repurchase program; $113.3 million remained at quarter-end. It subsequently repurchased $15.6 million of shares under a Rule 10b5-1 plan.
- On April 26, 2022, the company increased its revolving facility from $800 million to $1.0 billion, transitioned its benchmark from LIBOR to SOFR, and drew $192.5 million to repay the term loan A. Total indebtedness was unchanged. The company also terminated its remaining interest-rate swaps.
Outlook, risks and contingencies
- No full-year earnings or revenue guidance is provided in the filing. Management estimated 2022 capital expenditures of approximately $225 million to $240 million and said expected liquidity sources should cover obligations for the next 12 months, subject to revenue, cash flow, cost and working-capital performance.
- Management cited commodity and wage inflation, utilities and advertising costs as offsets to sales gains. Disclosed risks include consumer demand and traffic, COVID-19 impacts, labor availability and costs, commodity supply and pricing, competition, interest rates and leverage, foreign currency, cybersecurity, regulation and litigation.
- The effective tax rate increased to 17.0% from 8.6%, primarily due to changes in the amount and mix of forecasted pretax income across U.S. and international subsidiaries. The filing also discusses foreign-tax-credit rule changes affecting 2022 taxes.
- Legal reserves were $7.5 million. The company said additional losses beyond reserves are reasonably possible but could not estimate a range. Contingent lease guarantees had undiscounted potential payments of approximately $24.2 million and a recorded liability of $9.0 million.
- Q1 included $4.1 million of noncash interest expense related to terminated swaps. The filing estimates $8.5 million of swap-related losses will be reclassified to interest expense through the former November 2022 maturity date; remaining swaps were terminated after quarter-end.
Important facts for investors to verify
- Whether restaurant traffic and check growth can persist, particularly as inflation and menu pricing affect customers and margins.
- Whether commodity, wage, utility and advertising cost pressures continue to erode restaurant-level margins.
- How the $225–$240 million capital expenditure plan, dividends and repurchases affect cash, borrowing and debt service.
- The effects of the April credit amendment and swap terminations on future interest expense, borrowing capacity and covenant headroom.
- Potential exposure from legal proceedings and lease guarantees, and the realized impact of foreign-tax-credit changes.